REIA shows whites of the eyes as negative gearing faces chop


From the REIA:

REIA responds to oppositions start date for negative gearing and capital gains tax changes 

The Real Estate Institute of Australia (REIA) has reiterated its strong opposition to the Labor Party’s negative gearing and capital gains tax policy following the announcment that the 1 January 2020 would be the start date for their negative gearing and capital gains tax increases if they were to win the Federal election.

“The REIA has always been concerned with the impact the policy would have on housing markets, buyers, renters and economic activity,” REIA President Adrian Kelly said.

“This concern is magnified in the current market.
“There is almost truck loads of analysis and reports showing the adverse impacts of the policy on mum and dad investors, home owners, renters, the construction industry, state governments and the economy.

“The latest was last week when SQM Research showed that: house prices would drop between 5% to 12% on a weighted average for the capital cities for 2020 to 2022 over and above any other falls being experienced; rents are expected to increase by between 8% and 15% on a weighted average for the capital cities for 2020 to 2022; housing construction activity will fall by 25% to 30% from 2019 levels, which; will have employment and GDP impacts; property sales turnover is forecast to fall by a further 12% to 15%, resulting in; a drop in state stamp duty revenue of approximately $2.3 billion.

“For first home buyers, who according to Labor, should see improved housing affordability by a “levelling of the playing field” will now face a faltering economy, lower employment prospects, the possibility of higher interest rates under a Labor Government* and higher rents whilst they save for a deposit,” Mr Kelly said.

I only posted this so readers can enjoy the whites of the eyes at the nation’s greatest property locust. The REIA’s desperation is obvious in the furious pumping of the debunked SQM research. Let’s not forget that SQM itself was very much in favour of the reforms before a conversion on the road to Damascus.

On 11 March 2015 SQM noted the following with regards to the Abbott Government’s refusal to reform the tax lurk:

“We are of the belief that the less government intervention there is in the property market, the better. Governments all round should be doing more to promote housing affordability, not unaffordability.

Reducing negative gearing, a highly distortionary policy, would have a far more beneficial effect on promoting housing affordability. If negative gearing was repealed or altered, investors who are now gobbling up property would back off buying houses, which is what those who are demanding lower dwelling prices want to see…

So, if anything needs to be done, it is to eliminate existing distortions, and not introduce more”.


SQM then followed-up on 30 March 2015 with a strongly worded piece arguing that negative gearing should be restricted to new dwellings in order to boost dwelling supply:

“I firmly believe negative gearing should be restricted to new residential real estate. By allowing negative gearing on new residential properties and off-the-plan developments, we are providing a proper tax benefit to where it is justified and needed most: the construction and development of new dwellings.

That was the original purpose of negative gearing. The tax benefit was actually first introduced in 1936 with the direct aim to increase the supply of housing and move the economy forward from the Great Depression.

The problem is when it is applied on existing properties there is no real tangible economic benefit. Instead, it is unnecessarily stimulating demand on existing housing and, therefore, pushing house prices artificially upwards and so, damaging affordability.

Now in all this, if negative gearing is restricted, it will unlikely mean dwelling price falls everywhere. The market is driven by many factors including population growth, interest rates, the exchange rate and, of course, the health of the economy. However, I would expect a moderate correction, where investor demand has been very strong in recent times, such as the Sydney housing market…

If governments wish to improve affordability in the market, restricting negative gearing to new homes would be ideal. It would stimulate new housing and reduce investor activity on existing housing”.

Then On 17 April 2015, SQM continued:


Louis Christopher this morning told SmartCompany he was disappointed in the Prime Minister’s “hypocritical” decision to leave negative gearing unchanged.

“Now would have been a perfect time to implement changes, given the market is on a little high, it would have been able to withstand any changes now, rather than in a period of downturn,” says Christopher.

Christopher says given the backdrop of the budget black hole and a housing affordability crisis, a reform would have been a “vote winner” for the Abbott government.

“Tony Abbott now has hardly any leg to stand on when talking about tax reform and tightening our belts and so forth,” he says.

“The changes will fall on the working class, when he’s willing to give breaks on big companies and breaks on investors, it’s hypocritical. This will be a vote loser”…

Christopher also says the decision seems to go against the direction of Abbott’s own Treasurer, Joe Hockey, and believes the PM is listening to “self-serving” voices and not looking at the bigger picture.

“It’s stupid from a property market perspective. He’s failed.”

In February, 2016 SQM appeared on Sunrise to argue the case:


Here’s the money quote:

“The notion of having negative gearing on new property is not a bad idea because I think that will encourage supply and puts the concession where we need it most, and that is increasing the supply of new real estate, which will keep the rents at a stable level and make sure that we don’t have a long-term housing bubble”.

A few days later, SQM appeared on The ABC arguing that Labor’s policy would most likely lower rents:

DAVID TAYLOR: [Christopher] says there’s no clear evidence that the Labor government’s policy to scrap negative gearing in the 1980s led to higher rental prices.

LOUIS CHRISTOPHER: The truth is that the rental period at that time, across Australia, was mixed.

There were some cities during this time which recorded falls in rents; there were other cities, namely Perth and Sydney, which were recording rises in rents above and beyond inflation.

DAVID TAYLOR: Louis Christopher, based on your numbers though, do you suspect that rents would rise if negative gearing was taken away, as property investors try to make up for some of the other expenses?

LOUIS CHRISTOPHER: What Labor has actually put forward is about stimulating new supply of property, so we think that that would put a little bit of a dent in that whole argument that “look, rents would dramatically rise”, because what they’re trying to do here is actually stimulate the supply side, and we think they would have some success in doing that.

And later in February SQM argued that there would be no rent spikes or market decimation under Labor’s policy:


“Would there be a surge in rents?

In our opinion, we think no. And that is based on what happened in history as well as the fact that if Labor’s policy passed, it would keep negative gearing on new property…

Labors’ proposal to keep negative gearing on new properties would most likely ensure a strong supply side response to the market. We have seen such directed stimulus work on the markets before, namely in the form of various first home owner grants, so we are confident, the market is responsive to such stimulus.

We believe that should Labor’s proposal succeed there would be an adjustment period where, yes, many investors may stay away from existing property for a period of time, but only until such time that a rise in yields gives them incentive to start buying existing properties again. This would happen as investors would demand a higher yield to offset the lack of tax concessions.

But such a period would not go on forever. Once yields are higher, investors would then re-enter the market. Potentially yields could rise to the point where existing residential properties are cash-flow positive from day one, or at least, cash flow neutral. Which I believe would be a positive for the asset class over the long run…

But this adjustment does not necessarily mean there would be an outright “decimation of the market”. We may well likely see for example a period of stagnation in property prices for existing property. Or prices rising more slowly than rents”.

Then in March 2016, SQM slammed the dodgy BIS modelling’s claim that rents would rise by 10% under Labor’s policy:

SQM Research managing director Louis Christopher also called the report’s findings, in particular a rent increase of 10 per cent, “hard to believe”.

“We think the opposite would play out – there would be a moderate increase in supply,” Mr Christopher said.

“Negative gearing is an existing distortion and the market will eventually adjust to the new reality,” he said.


Prices are falling today versus rising through 2015/16 but the arguments don’t change. The tax changes are structural not cyclical. Property is still miles overvalued. Rental markets are not about to take off, if anything loosening. And supply still needs to keep coming if population growth continues.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.